Superior Plus' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: Superior Plus (SUUIF)

Superior Plus Corporation (OTC:SUUIF) Q3 2013 Earnings Call November 1, 2013 10:30 AM ET

Executives

Luc Desjardins – President and CEO

Wayne Bingham – EVP and CFO

Analysts

Jacob Bout – CIBC

Sarah Hughes – Cormark Securities

Alex Syrnyk – BMO Capital Markets

Operator

Good morning ladies and gentlemen, welcome to the Superior Plus Corp Third Quarter 2013 Results Conference Call. I would now like to turn the meeting over to Mr. Luc Desjardins. Please go ahead Mr. Desjardins.

Luc Desjardins

Good morning, thank you and welcome to Superior Plus 2013 Third Quarter Results Conference Call. With me in this morning call is Wayne Bingham, VP and CFO; and Jay Bachman, Vice-President, Investor Relations and Treasurer. Wayne will provide an overview of the third quarter results after which I’ll provide an update of each business strategy and business environment. On that, I’ll now turn the call to go to Wayne.

Wayne Bingham

Great, thank Luc. Welcome everyone to the third quarter conference call. I will make a few brief comments on the quarter and then turn it back to Luc. The consolidated AOCF for the quarter was 19 cents per share compared to 30 cents in the prior quarter and was in line with management’s expectations. You will recall 2012, had a one-time benefit of approximately 11 cents per share for the settlement on the PPA with TransCanada. The quarter was also impacted by the increased number of common shares outstanding from the March equity issue. We continue with our focus on paying down debt including our maturity and redemptions scheduled and executing on overall debt reduction program. I’ll touch on that a little bit later. Excuse me; I will now make some brief comments on the individual business performance.

Turning to Energy Services, Energy Services recorded an EBITDA of 8.3 compared to 13 million of EBITDA in the prior quarter. In the propane Canada operations, margins were 20.5 cents per liter compared to 19.7 cents per liter in the prior quarter. Margins in US were up slightly as well to 5.1 cents per liter compared to 4.9 cents per liter in the prior quarter. The improvement in margin is in part mixed in overall margin management. Overall gross profit for Energy Services was 83.6 million versus 85.4 million in the prior year’s quarter. Propane U.S. RF supply and other services provided positive growth for the quarter, however this was offset by a quarter over quarter reduction in gross profit at SEM. As we have said, in the prior quarters, this headwind is behind us and EBITDA has stabilized at the current remnant.

Turning now the Specialty Chemicals, the fundamentals with the chemical industry in the third quarter were consistent with recent quarters. As a result Specialty Chemicals business generated EBITDA of 24.6 million compared to 28.5 million in the prior quarter excluding the impact of the one-time payment from TransCanada in the prior quarter. Flow rate volumes were solid and strong and up by approximately 12,000 tons primarily related to increased export and chili volumes. Soft wood prices remained very healthy in North America in $940 plus a ton range. Hardwood prices are down slightly recently but up from 2012. On the chlor-alkali side of the business, production results reported which were impacted by about 2000 tons due to maintenance downtime. Costs to contain wedge pricing were strong but were offset by lower HGL and chlorine prices.

Turning now to Construction Products, our construction products division recorded an excellent Q3 with EBITDA 10.1 million compared to 3.6 million in the prior year. CPD had one-time restructuring charges of $2.7 million included in the third quarter of 2012. U.S. construction industry fundamentals continue to improve and in particular the U.S. housing industry. The CPD U.S. GSD is benefiting from improved housing fundamentals with quarter over quarter revenue growth of approximately 20%. On a C&I side some positive signs are beginning to emerge with employment in the non-residential sector picking up. C&I revenues for the quarter are up 15% compared to 2012.

Turning now to our debt management our efforts to reduce debt continued in third quarter and now leverage ratio as of September 30th is 3.6x. We have experienced an increase in propene prices and are starting to build inventories for the Hughes. On October 28th we redeemed the senior unsecured debentures in the amount of 150 million using our bank lands. Our overall all in term debt rate is now approximately 6.25%. We currently have approximately 200 million of capacity on our bank lands. Our maturity schedule is in excellent shape with our next maturity being October 31, 2016 for the 7.5% Series G. The window for redemption opens up for that series in October 2015. On the CRA front, we filed our notice of appeal with the Federal Tax Court in August which has commenced the litigation process. Finally guidance for 2013 is $60 to $85 per share remains unchanged, however it does exclude recognition of restructuring charges. I’ll now hand it back to Luc.

Luc Desjardins

Thank you, Wayne. So, we were pleased with Superior’s performance during third quarter with the business is performing consistent with our expectations. I would like to reiterate Wayne’s comments that we are confirming out financial outlook for 2013 of 165 to 185 per share and in addition we are introducing our 2014 financial outlook of 165 to 195 per share. Our 2013 and 2014 financial outlooks are provided before restructuring charges. Our 2014 financial outlook is consistent with our previously provided guidance provided as part of the destination 2015 with anticipated improvement for 2014 in the range of 5% to 7% and 9% to 12% for the 2015.

The operational initiative that underpinned the destination 2015 continued to track well and we continued to work on execution throughout the remainder of 2013 and throughout 2014. Due to the nature of the significant number of the initiative particularly in the Energy Services Division, we continue to anticipate that we will see progress from a financial prospective in the second half of 2014 and much more into the 2015 year. As an example of our initiatives, our current operating cost gross profit percentage in our Canadian Propane businesses are approximately 73.5% compared to the best of class in the range of 65% to 66%. This 8.5% reduction represents approximately 20 million reduction in operating cost.

We anticipate providing additional detail in TPI on this and a few other TPI on other initiative at our upcoming Investor Day in November in Toronto. As noted in our third quarter release we are continuing with our restructuring activities in the energy services and construction product businesses. This restructuring is a natural extension of the ongoing initiative activity as we work through the second half of the execution of these activities. The restructuring we have planned in our energy service business will be focused on the execution and completion of reengineering of our core processes. By reengineering our processes we will be able to fully leverage our new IT system and improving our day-to-day operation. This will result in a more efficient business with a lower cost structure moving forward, the impact of which we expect to see in our financial results in the latter half of 2014, and of course full running rate in 2015. We anticipate providing increased details of matrix on our key initiative or more clarity to all our investors with respect to energy business at our upcoming another segment, other division as well at our upcoming Investor Days.

In our construction product business, the restructuring activity will be focused on further aligning our Gypsum and C&I business into one North American focus building product distributor. This alignment will be completed by reorganizing our regional operating model which will include the elimination of one layer of management and implement a common information system for the overall company across North America. The benefits of completing this integration which we will see in the formation of five operating regions in North America will be improved operating effectiveness and a more agile business which will allow us to leverage our size for procurement as well as utilizing best practice throughout the North American operation.

Superior anticipates incurring 15 million to 20 million in restructuring costs for the fourth quarter 2013 and the second – the first half of 2014. The timing of the recognition of the cost will be dependent on the accounting requirements to recognize the cost in accordance with the prescribed accounting standards. I continue to feel positive about our businesses and I am confident in execution of our business plan over the remainder of 2013 and into 2014.

I remain confident that our ongoing focus on improving the day-to-day operation of our businesses will continue to move forward providing us with the foundation for future operational and financial improvement for many years to come. I would like to spend a minute to provide a more thorough update on each of our businesses in relation to the 2014 financial outlook. We continue to see improved EBITDA in 2014 over 2013 in our energy service business. Ongoing improvement in our Canadian Propane and U.S. refined fuel business will more than set the decline of our fixed price energy service business. We expect the contribution from fixed-price energy business in 2014 to be similar to 2013 as the decline of the residential portion of the business due to an existing this portion of the business in prior year. We will now be behind us as we enter 2014. Just to put a little bit more clarity to this, over the last 12 months the fixed-price business has realized a 14.5 million reduction in gross profit relative to the comparative period which has been offset by improvement in the Canadian Propane and U.S. refined fuel business. So the additional clarity we are now at the bottom of that EBITDA for this division and expect the same type of level for next year.

The Canadian Propane business will continue to focus on the execution of its IT system implementation. To date, the system has been successfully implemented in the Atlantic Canada with the BC region starting in November of this year. We anticipate the remainder of the region implementing the system throughout the next three quarters. We have been cautious with implementation schedule to minimize the impact on our business throughout the busy heating season. In conjunction with the add implementation, the business will look at leveraging and capturing the benefit of the system by continuing its work on the development of a standard operating model, the same one across all the energy business in the year to come.

The implementation of a standard operating model will help ensure that we consistently deliver superior product and service to our customer while at the same time allowing us to reduce our cost structure as we become more efficient. We anticipate that we will see an initial benefit of these activity in the latter half of 2014, with a comprehensive roll-out of the standardized procedure in addition to reviewing our operational processes, we continue to make investment in sales and marketing function and have realized some early success in reducing our customer attrition level and growing our commercial customer base.

We are optimistic that we will continue to seek new customer successes across all lines of business. Our U.S. refined field business continues to work on improving day-to-day operation. We are currently undertaking a detailed review of the service component of the business and are optimistic that we can reduce our cost in this component of the business without impacting the way we serve our customers. The U.S. refine fuel business is also working on implementing a comprehensive integrated supply strategy. This updated supply model will ensure that we are meeting the supply needs of our business while at the same time reducing our cost of procuring products ultimately resulting in improved margins. We anticipate seeing the initial benefit of this update strategy starting in 2014 with further improvement in the year after. We expect a solid fourth quarter in a Specialty Chemical with the largest reduction of EBITDA for 2014 compared to 2013.

The result of 2014 will be impacted by reduced selling price of sodium chlorate of high electricity and higher electricity costs and all superior chlorate facilities. The impact on sodium chlorate selling price has risen recently as we have worked renewing our expiring contract throughout the third quarter. Selling price will negatively impact by reduced North American pulp demand due to our pulp mill closure in United States which has resulted in a modest oversupply of sodium chlorate. The small supply demand and balance in chlorate has resulted in negative overall pressure on selling prices. To date, we have secured a majority of expiring sales contract to ensure our volume output is solved, but have had to take reduced average selling price in order to do so.

Unfortunately at the time – the same time there is a supply demand imbalance were also faced with a rising cost environment for electricity which by the way represents approximately 70% of the variable cost of our plants. It is typical throughout most jurisdictions in North America due to increased demand of electricity; additional infrastructure is required in the short term to meet the increased needs. These infrastructure projects are ultimately rolled into the overall electricity rate base and as such we are incurring increase of our electricity prices which are greater than historical increases. We continue to pursue opportunities to minimize the impact of these increases but we also need to manage the current pricing environment for chlorate given the current supply demand fundamentals.

On a positive note, Superior has entered into a strategic supply management with products thereby Superior has secured the right to the entire capacity of the product sold for each plant in Hamilton, Mississippi of up to 130,000 ton per year. We may elect to take less volume year-after-year on creating such a supply demand fundamentals. The Chlor-Alkali facility is strategic located to allow ERCO to further optimize its distribution network across North America. We anticipate that the overall market of Chlor-Alkali which includes caustic chlorine and hydrochloric acid will remain steady throughout the remainder of 2013, and into 2014. Our Chlor-Alkali facilities strategically located in the Saskatoo of Saskatchewan and Port Edwards, Wisconsin are in close proximity of our customer base which provide us with a significant great advantage relative to product produced in other parts of North America.

Pricing for caustic soda and potassium caustic have been steady to modestly improve throughout 2013. In 2014, we anticipate that there will be a modest reduction in average selling price. Our expectation on pricing for chlorine and hydrochloric acid for 2014 are that pricing will be modestly higher than 2013. As noted in our press release, the expansion of our hydrochloric acid facility in Port Edward is now anticipated to be commercial production in the fourth quarter of 2014, which is earlier than the update provided in August. Saskatoo facility will also be in commercial production in the fourth quarter of 2014. Both projects remain on budget, demand for products on these facility has been strong and we anticipate I think the majority of the production been contracted prior to being in a commercial production. Currently, approximately 70% of the Port Edwards capacity has been contracted and we are in active negotiation with respect to the remaining capacity with respect to the remaining capacity.

Further we anticipate that the Saskatoo facility will be close to fully contracted by the fourth quarter 2014. The fundamental within our construction products will be particularly in our U.S. operation which currently generates approximately two-third of our EBITDA in that group is improving. Growth in our U.S. Gypsum and GSD business have been consistently improving at the rate of 15% or so. Based on the existing U.S. all things start and the state of the U.S. economy, we are anticipating that this will continue throughout 2014 and then 2015. Historically, the improvement in the commercial GSD had lagged improvement in the residential sector by about 18 months. While it is difficult to determine what delight will be coming out of this past cycle, giving the historical decline in the housing and construction, we are encouraged that we have begun to see positive sign of improving in the commercial GSD market. Although it is too early to say that this market has turned a corner, it is encouraging to see small improvement in this segment which contributes to 50% of our EBITDA in the construction business.

Our commercial and industrial insulation business continues to perform well. Over the last two years, the industrial portion of this business has been steady with commercial activity lagging similar to the improvement in the commercial GSD base we are beginning to see sustainable improvement in commercial insulation sales. We are optimistic that the restructuring activity noted earlier will provide a foundation necessary to create a best in class construction product business in North America. Our revised structure will not only allow us to reduce that count and therefore reduce stock, but we will be more agile and flexible to respond to changing market dynamic, acting as one company to leverage our size ensuring we operate with the best practices on the North American bases.

With respect to the CPD initiative we continue to make excellent progress. The execution of our pricing and procurement initiative are tracking very well, and I am positive that we will meet our goal over 1% increase in margin year-after-year. This improvement would represent approximately $8 million of EBITDA yearly. From a corporate perspective, we will continue to focus on reducing our debt. We anticipate our debt at the end of 2014 being in the range of 3.3 to 3.7 while we continue to focus on minimizing our working capital requirement to assist and our debt reduction initiative were unfortunately not able to control the commodity cost of our energy products. Recent increases in the wholesale cost of propane have increased our overall working capital requirement which has negatively impacted our working capital improvement. Our balance sheet maturities are in excellent shape with no material maturities on sale 2016.

We continue to have excellent access to capital market and in conclusion, we continue to make progress on the transformation objective established as part of destination 2015, but we understand that we have a tremendous amount of work remaining in order to meet our goals in becoming a best of class organization. 2014 is a big year for us. I am confident that we will achieve this goal based on the genuine commitment and activity and active involvement I see from Superior Leadership Team and in all of our employees. Lastly, I would like to add that Superior 2013 Investor Day will be held in Toronto at the King Edward Hotel on Friday, November 29, 2013 with the thought to providing further details on Superior’s businesses including a more detailed review of the objectives and financial target which comprises of Superior Destination 2015. Further details and information required to [indiscernible] provided in Superior’s third quarter press release as well as on Superior Corporate website. With that said, I would now like to open that up to questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

The first question is from Jacob Bout of CIBC. Please go ahead.

Jacob Bout – CIBC

Good Morning.

Luc Desjardins

Good morning.

Jacob Bout – CIBC

Some questions on the guidance on the chemical side. So for the chlorate you talked about lower selling prices as you negotiate in 2014 contracts. How much above were?, I think we talked recently about you know, instead of GDP plus pricing your basically flat pricing year-on-year, is that still bowered or is it a lower price and how big is the –the surplus and is it just primarily just from the restart of Cameron and how much product is out there in the market?

Wayne Bingham

I would say on average Jacob we – we did receive 1% to 2% on the chlorate pricing.

Jacob Bout – CIBC

Sorry, 1% to 2% decrease in pricing?

Luc Desjardins

Yeah.

Jacob Bout – CIBC

Okay.

Luc Desjardins

On the supply demand balance between 75 and 100,000 tons in North America.

Jacob Bout – CIBC

Okay, and what is the size of the North America market right now?

Luc Desjardins

About 1.5 or 1.45, 1.5 in that range.

Jacob Bout – CIBC

Okay.

Luc Desjardins

Billion tons.

Jacob Bout – CIBC

And then the electricity price increase that you talked about. This is going to increase your cost.

Luc Desjardins

Yeah.

Jacob Bout – CIBC

Specifically what – what plans are those?

Luc Desjardins

Let’s say all the Canadian plants and one in the States, the Canadian plants they come out with large increase demand and we usually end up a bit lower than what their demand are but we have a lot of [indiscernible] and standby plan, the revision showed us that it is going to be more than the past and fortunately it is a big part of our cost so we are getting affected more in our Canadian plants than our U.S. plants.

Wayne Bingham

Jacob, just an add-on to Luc’s comment. These applications we are going to intervene as Luc said [indiscernible] groups in every jurisdictions but diffusely a one-year lag as these parts assume these costs get approved in April or May after hearing then they will become part of the contract negotiations in the third and fourth quarter of 2014, so it is a bit of lag, but we will be looking to have discussions with our customers about the cost of increase so an ongoing one, an ongoing one-time thing that we have to absorb.

Jacob Bout – CIBC

Okay and then may be last. What are you seeing on the hydrochloric pricing side? You know where is pricing now versus where it was last quarter or even a year ago, I mean there has been [indiscernible] and then how geographic is it on the pricing side.

Luc Desjardins

Yeah, you know, first of all we see a modest improvement and having got the numbers there has been modest improvement for next year and you are quiet correct, it is a regional market and you know, specific to our resellers and then direct customers and obviously there is a variation in margins between the two but what is very, very important is Luc mentioned is we see those two plans coming on stream and getting them by the end of the year fully contracted and we have got as relates the Port Edwards about 70% contracted now. So we are very comfortable, excellent relationships with wholesalers and our customers and you know, that as we said in the past those two plants are strategically located and we are very comfortable with bringing on that capacity in the current supply demand environment.

Jacob Bout – CIBC

Maybe if I just could, just so this marketing of the chlorate, I mean, obviously it is a pretty big deal as far as the chlorate industry is concerned, I mean, historically they caused you know, some heartache on the pricing side, what is the possibility something like that with some of that Chimera capacity?

Luc Desjardins

Don’t know about Chimera, but for us it is a very good move or good strategic move, a couple of reasons. First for us this is core business for us, so we want to be good at it and it has to be important in that particular product and I think we have said it and are communicated every year we can decide, I mean the what is the volume going to be in that plan year-by-year. So we are very optimistic. It’s a work in progress and we are starting, it is all new. It will be a year of getting organized and see where all the chip falls for 2014 even though it is positive for the company in 2014 and then how is the market doing for that, lot of work for us to continue to do to see how the total capacity demand and supply and our capacity to be a larger player and how that kind of location which ideally is very well positioned for us on the logistic, transportation, exchange of producing in the right plant and adding less cost of transportation, all of that is remaining. So to do and there is huge opportunity in the network by having access to our plant in that location.

Jacob Bout – CIBC

Okay Thank you very much guys.

Luc Desjardins

Okay.

Operator

Thank You. The following question is from Sarah Hughes of Cormark Securities. Please go ahead.

Sarah Hughes – Cormark Securities

Good Morning.

Luc Desjardins

Good Morning.

Sarah Hughes – Cormark Securities

So I guess first on the additional restructuring cost that you talked about. I was just wondering will this have incremental cost savings than you initially expected or is it costing more to get the cost savings that you were always planning?

Luc Desjardins

No, it’s a good question. We are going to be, I think, more positive approach to our 2014 guidance but the chlorate price has kind of set us back but from a cost investment and return, you know, we still have a lot to do to continue – or first let’s look at the energy then I will talk about the restructuring. So we have heard new tenant across Canada were developing the same processes from the systemic TransCanada and now executing an add system that [indiscernible] industry province by province, taking a pause in December because of the wintertime and continuing in the spring. So we had a double cost if you want a system execution of our new system and holding the old one until June.

That ideal which we could do it all faster and quicker but we have the big winter in customer to service that we stayed away from jamming our business with customer service and more demand and having execution changing the way they will proceed and process everything we do every day. Over and about that once you have better clarity information on that you can operate and then we called it in the presentation an operating system, it is not really a mechanical system and how do you operate every day, everywhere and that brings you efficiency productivity improvement a lot and as mentioned, a $20 million just from that’s that the peculiar bucket of being more efficient in Canada in propane.

So when we are taking a reserve which is for more than the energy group but the majority is there and it touches our energy U.S. because we do see some improvement towards the technician how we go to market on the servicing. So all of that will take a full year to unwrap and do because of all other project and works and then we see the payback those investments are pretty good and pretty major as maybe the latest part of 2014, and we put [indiscernible] on our number and then 2015 more complete and the reason why notes an extra major jump in 2014 is that because the energy group is not adding EBITDA because chlorate is taking us down on lower level than we expected. So it is happening in the energy group as planned and extremely well, even a lot of earliest things ahead of us, this is the big year but we have just had back on the chlorate.

Sarah Hughes – Cormark Securities

Okay and then just to confirm, if I look at the operating, I mean, cost on the energy side, there are year-over-year, is a majority of that just investment that you need to do to bring cost down going forward?

Luc Desjardins

[indiscernible] in the quarter it was basically maintenance for our fleet that can, you know, bounce around from quarter-to-quarter depending but in our particular quarter our maintenance cost were quite a bit and this also was carrying on the [indiscernible] key project team. There is a portion about to get expensed so there was a little bit of that in the quarter as well.

Sarah Hughes – Cormark Securities

Okay.

Luc Desjardins

So, there is nothing systemic there and as Luc mentioned, there is a very big price associated with heading the operating ratios that he has outlined.

Sarah Hughes – Cormark Securities

Yeah.

Luc Desjardins

And so that’s what we are driving for right now.

Sarah Hughes – Cormark Securities

Okay and then taking with the energy, you know, we have seen some growth on your residential side this year if I look at volume growth.

Luc Desjardins

Yes.

Sarah Hughes – Cormark Securities

Is that anything internally in terms of some taxing getting internally or is it just more market related?

Luc Desjardins

I would say more than half is internal, guys mentioned this over the past quarterly review that we have a new marketing team with some very high-level expert, a lady running our marketing department for energy, and she was able to organize work and project to minimize attrition or just come down a lot and she is now reorganizing some of her sales effort in residential to track and getting internal growth. I am very pleased with our market development in that segment and then on a national account we have hired five such people across Canada starting its all hard people in the last six months and we are starting to look at many national account there is and as I told all of you before, we are in shoe and we are the only national supplier and we [indiscernible] profile of 50 national customer not all the same volume but first top 10 are larger than the bottom 10 but that’s all new and is happening and we are visiting and we are knocking on doors and again we have seen a bit of growth there as well. So, from a segmentation market, how to go to market how to price we are already doing that and marching to getting organized and executing very well in that regard.

Sarah Hughes – Cormark Securities

Okay.

Luc Desjardins

The big issue now is let’s get the cost in order. We need 2014 to get there unfortunately as we do not management, people first and that takes six to nine months to rebuild a team across Canada then redoing processes and then the add sustain another six months and now we are saying okay, now we have vision on cost and efficiency of the productivity that can come and that is the next week.

Sarah Hughes – Cormark Securities

Okay and then just last for me on the propane, your average sales margin came up a bit again this quarter. Did the improvement we see is that sustainable going forward not withstanding seasonal moves on that number, but should we see that continue going forward?

Luc Desjardins

Yeah we see it’s – let me follow this little bit, you know, it’s on more investor role, plus margin than residential than national accounts. There is always a mixed issue for that, but we every time tell people to tell me the mixed issue, I don’t like it that does not mean you don’t like it either, but on top of that it is sustainable. There is no way when we look at what we do for servicing our customer, if we do a good job and we develop accounts this is not the type of business that you lose for a penny or there when you service well then do the job, beyond the time for many years. It is not a penny business in and out, it has to sustainability, it has solidity and we are not pricing intelligently remember a year or two ago we redid 6000 contracts with our customer that we had left aside for too long and now we are meeting them one by one and getting the value that we deserve. It is sustainable.

Sarah Hughes – Cormark Securities

Okay. It is good for me. Thank you.

Luc Desjardins

Thank you.

Operator

Thank you. (Operator Instructions) The following question is from Alex Syrnyk of BMO Capital Markets. Please go ahead.

Alex Syrnyk – BMO Capital Markets

Hi, good Morning.

Luc Desjardins

Good morning Alex.

Alex Syrnyk – BMO Capital Markets

Nothing, starting off on the chemical side, you mentioned that there is an expectation that you could see some increases in chlorine pricing next year, just wondering what you are seeing there, what’s driving that expectation, just because, I mean, it runs a little bit counter to what you expect, some of the U.S. chlor-alkali producers come up with you?

Luc Desjardins

Well, I think it’s ironic. I think it’s specific to our plants and what to be on the pricing that we incurred this year, sometimes you have to move chlorine because you do not want your plant to go down and you are capped at the pricing and based upon our view and the amount of you know chlorine pricing it’s you know very, very modest thing but it is going to be improved year over year.

Alex Syrnyk – BMO Capital Markets

And then just clarification Luc in your opening comments, just want to make sure if I heard this right, in terms of the Energy Services side you mentioned a 20 million cost improvement, can you just clear?

Luc Desjardins

Yes, basically, when you look at the new management team, you look at the new processes that are being reorganized in TransCanada you look at the add execution which fortunately be July by the time we are done in 2014, then you have a capacity to look at your printing practice and say, a reproductive and there is money there but we could know that rest of that go up some by history. You have the right at this time you have good management and there is just do not operate at the right level from an opportunity of CPD on pricing a supply chain, you can put down together and get going within a year and you have to rebuild a management team, you have to rebuild system with [indiscernible] for business of our system, everybody, people and system for formation we receive it became that everybody does it their way, because there is not a company way of operating. Putting in place the [indiscernible] rather than incorporating way of doing business across the business everywhere the same way and that give us understanding of our productivity or non-productivity. So when we start our account for the non-productivity within the state but not less and on specific statement to the technician and in Canada all of people where we have good level or high level of non-productivity we want to help our employees to have a good day of work which is more productive and when you look at all that, it is hard to making it happen which will take a whole year 2014. At the end of all that at the full running rate, there is a good price of cost like being more efficient and that is in the neighborhood for the energy group of about 20 million.

Alex Syrnyk – BMO Capital Markets

Okay, great, that’s very good color.

Luc Desjardins

If it does not matter to you, you could do more than that on margins, attrition, reduction, development of sales and some segment which we intend to do and already are organized to do in 2014, more than in the past. Then you have a machine that really harm probably and I have said the term the environment [indiscernible] businesses in a year and a half to years would be almost there. And the case of where we started from here is an extra year and I knew from the beginning 2014 will be the big correction year where we will get our act or information on our people in place and in 2015 we are going to get there, if it takes longer because we started from too much of a disorganized business.

Alex Syrnyk – BMO Capital Markets

Okay. And then to stay on the Energy Services side, you know we discussed the impact, I guess of propane price impact on it in terms of your working capital – I mean with the increase we have seen in the propane prices this year, do you have any worry about demand attrition or see any signs of that as we go into the winter.

Luc Desjardins

No because the – when you are still very lower on the net price for the different energy to compare to all others but natural [indiscernible], but let’s say all. For all of our customer segment, we still the right energy solution at the right cost which is lower than still by far than other, so I do not see any market changing because of that. No doubt Alex if we do not see that continuing either propane price going up for the next two to three years, it is not the prediction, it is a bit of a short rate model of demand and supply but that should be rebalanced within a year but there is no doubt that we see auto industry coming back and we thought 2014, 2015, 2016 might become a bigger business. That can slow down if price of propane were to continue to go up, that segment might not go up as much, but whatever we started that we already serviced is not going away because of price of propane.

Alex Syrnyk – BMO Capital Markets

Okay, great, I will turn it over. Thanks.

Luc Desjardins

Yes.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Desjardins.

Luc Desjardins

Thank you very much. Third quarter is never a huge quarter for us as you all know quarter four and quarter one is the biggest quarter, so we are quite pleased about where we are at and we have always bit of our head top from something within control and chlorate price and [indiscernible] situation we have to live with and are acting accordingly, that’s why our guidance with all the other things happening or guidance next year can change and we are going to continue to proceed to make this business better. If there is no further question, I would like to conclude the call and thank all the participants. I hope to see you all on November 29, our upcoming investor day in Seattle. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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